US Government Shutdown Threatens Panda-monium

All hell broke loose last night. The government shutdown in the US suddenly ‘got real’ and there was uproar across the country. One commentator suggested releasing giant pandas ‘into congress, let them maul [the politicians] out of office and then [the bears] shall run our government.‘

We’re not a fan of mauling, but we couldn’t agree more with the idea of having giant pandas running a country. Politicians that do nothing but eat bamboo leaves and poo would be a significant improvement.

Anyway, the uproar about the US government shutdown had nothing to do with unpaid bills, debt defaults or jobless civil servants. It was all about pandas, according to the Wall Street Journal. Hence the comments above.

You see, it turns out that the operators of Washington DC’s National Zoo ‘panda cams’ are somehow employed by the Federal Government. They are deemed ‘nonessential staff’ and were told not to come to work today because of the budget crisis. The result is that you can no longer see live pictures of Mei Xiang and her newborn cub when you visit the zoo’s website.

And that’s why all hell broke loose. It was as though the internet’s heart skipped a beat. Twitter, Facebook and the blogosphere erupted in unison. People offered to work for the zoo for free, urged politicians to give up on Obamacare, which is causing the US government gridlock, and pledged to support anything else that might turn on the panda cams again.

We’re not sure why webcams need ‘operators’ in the first place, to be honest. It sounds like one of those public servant jobs in Greece where street sweepers can work from home. But you’ve got to hand it to the zoo’s management team. They really know how to play the voters. If Kevin Rudd had pledged to put a panda cam on the big screen at Federation Square in Melbourne, he would’ve won the election.

All this illustrates the point about declining empires we made yesterday. The emperor is temporarily defunding the bread and circuses that keep the ‘plebs’ happy, just to remind them who’s boss.

Wall Street’s version of the panda cam is also being cut thanks to the government shut down. Bloomberg reports that the jobs data set for release on the 4th of October won’t be released if the government remains shut down until then. If you think taking pandas away from the plebs is bad, just wait until the financial elite don’t get their jobs report. How will the stock market jump or tumble without jobs data? What will their algorithms trade on? How will anyone make any money? You can’t front-run a report that won’t be released.

Worse still, how will politicians justify running a deficit or implementing austerity if they can’t refer to the number of jobless who need their help?

Strangely enough, a lack of economic data is just the solution according to John Cowperthwaite. Here’s an excerpt from The Money for Life Letter which explains what usually happens when the government is disarmed of data:

‘Sir John James Cowperthwaite was a Scottish born economist. After the Second World War, British officials wanted to find a way to boost the Hong Kong economy in this new post war era. They hired the Scotsman and after some investigating and number crunching, he found something startling. The Hong Kong economy was doing just fine. And the more he witnessed the economy functioning on its own, the more he insisted the government stay out of it.

‘The British governors of Hong Kong gave Cowperthwaite free reign over the economy for many years because of his persuasive and rambunctious style. Instead of trying to stimulate, regulate or subsidise the economy, Cowperthwaite did something shocking. He stopped collecting economic statistics. Why? ‘If I let them compute those statistics they’ll want to use them for planning.’

‘In other words, Cowperthwaite figured out that without any statistics to obsess over, the temptation to constantly tinker with the economy would be minimal. While the rest of the world began regulating, subsidising and protecting their industries, Hong Kong surged on unrestrained.

‘Cowperthwaite went even further than not collecting statistics. The few economic policies he did implement were kept intentionally ambiguous. Cowperthwaite was asked about his currency policies and explained that even the management of Hong Kong’s banks, which implemented the policy, didn’t understand them. ‘Better they shouldn’t. They would mess it up.’

‘Cowperthwaite’s lack of intervention, constant battles against intervention and refusal to even allow interventionists to misinterpret economic data turned Hong Kong into one of the world’s most influential economic success stories. Cowperthwaite was knighted and took his place in the history books. There’s a bronze statue of him somewhere in Hong Kong.

‘Now I’m sure Hong Kong’s growth wasn’t without interruption. I bet even Usain Bolt falls over occasionally. But, disarmed without the statistics to hound politicians, lobbyists and populism never managed to goad Cowperthwaite off his free market policies. There were no $1000 stimulus cheques, school hall building schemes or pink batts. People got to keep their income because taxes stayed low and government debt wasn’t an issue.‘

So maybe a government shutdown isn’t a bad thing. People might get some work done instead of fawning over giant pandas. The government might stop meddling because it can’t justify its intervention. And the economy might grow until it balances the budget.

We’re just daydreaming of course.

Today the lack of positive data has become a reason to continue interfering with the economy instead of leaving it alone. Bernanke’s tapering of QE was delayed to wait for more signs of a strengthening economy. He won’t be getting those in the jobs report on the 4th of October then. If the budget impasse continues and there is no data at all, who knows what the Fed will come up with. Actually, we do know; more money printing.

The good news for stock markets is that the Federal Reserve isn’t part of the Federal Government, unlike the panda cams, so QE will proceed as per normal while the rest of America faces life without giant pandas on demand.

Given the lack of consequences of a government shutdown, except for the lack of giant pandas, it’s interesting that Panda-monium in the US can move the Aussie stock market so much. It was down more than 1% yesterday. There’s a government crisis in Italy too, mind you. And disappointing manufacturing data came out of China – nothing to do with giant pandas apparently.

But what you should really be watching, now that the pandas are unavailable, is the 10 year US Treasury bond yield. Yes, we know that sounds abstract and academic. But consider this.

For now, all these crises around the world are causing large countries’ government bonds to rally, as they usually would in a crisis. Eventually, the bond market will figure out that the coming crisis it’s worried about will hit the bond market itself, not just the stock market and the economy. It’s government that’s in financial trouble this time around. That means the traditional safe haven will become the centre of a financial crisis. Bond prices will tumble instead of soar as they usually do in a crisis.

There are few places to park your money safer than government bonds. Buy gold.

Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it.
To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

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